It's always good to talk with those really engaged in the ups and downs of the economy. At least two challenging issues I gathered from a friendly talk with Kim Eng Securities analysts. First, with regards to the decreasing role of private consumption in the total economic growth of 1Q05; I was offered insightful theory. That there's a changing consumer behavior triggered by extremely easy credit scheme for motorcycles. Average lower income household has a takehome pay for about Rp 1 million a month (USD 105). The easy credit tempts many of such household to buy motorcycles. They end up paying Rp 5oo,000 to Rp 600,000 (USD 53-63) each month. The leftover is really small, compared to the time where motorcycle credit is unaffordable. Hence the low private consumption number. I would add that the recent plan of Jakarta governor to develop special paths for motorcyclists in the city of Jakarta will contribute further to the skyrocketting of motorcycle sales. (My related post on this motorcycle credit, here).
Secondly, still related to that easy credit. It seems to my friends that interest rate really does not matter to the motorcycles buyers. They just require a credit scheme -- no matter how high or low the interest rate is. This is worth investigating. Since, "it is possible that the credit scheme is not a function of interest rate anymore -- it is the other way around!". This is really intriguing as well as challenging. If I have time and data, I'd love to test this hypothesis. (Students: want a good topic for thesis?)
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